MSG Playoff Runs Earn Dolan Second Look From Fans, Investors

Draped in blue and orange gear, a self-proclaimed die-hard New York Knicks fan who goes by the name Lucky Charm didn’t hesitate when asked for his opinion of team owner James Dolan. Perched outside of Madison Square Garden, he spoke for many New Yorkers by saying that Dolan should sell the team and that superstar free agents won’t come until that happens.

“Nobody wants to play for the Knicks because of him,” he said in an interview. “Real talk.” Despite his contempt for the executive chairman, which is a common thread among fans across the five boroughs, he couldn’t help but crack a smile and show his gold teeth. 

“I’m going to give him a break this year, because the Knicks are winning.”

The Knicks are winning, facing the Indiana Pacers in the Eastern Conference semifinal round of the NBA Playoffs this week. The team won Game 1 of the series Monday night, 121-117. The New York Rangers, also owned by Dolan’s MSG Sports, are also having a memorable run in the Stanley Cup Playoffs. The Garden has been rocking, with both tenants advancing to the second round of the playoffs in the same year for the first time since 2013.

It’s the kind of run that can soften the attitudes of even the longest-suffering fans. And Dolan, who declined to comment for this story, could use it: He has been at the helm during multiple incidents that were unpopular, to put it mildly, with the Knicks/Rangers faithful. The disconnect with fans has been well-documented, from hiring Isiah Thomas as New York Liberty team president following a sexual harassment lawsuit, to having Knicks legend Charles Oakley escorted out of the Garden in handcuffs, to his use of facial recognition technology to keep his enemies out of MSG.

But the dual playoff runs have allowed for a second look from a fanbase that regularly boos him. “From a fan’s perspective, all you can ask an owner to do is spend money, and he’s done that,” said Luis Cruz, a native New Yorker who has been rooting for the Knicks for more than 20 years.

MSG Sports shareholders are hoping the money spent to construct these contending teams will make the clubs more valuable and ultimately help the stock price be more reflective of the Knicks ($7.4 billion) and Rangers ($2.4 billion) Sportico valuations. The MSG Sports (NYSE: MSGS) market cap is currently $4.4 billion. The notion among analysts is that the only way to unlock the true value is if a team sale occurs, which former MSG Sports president David Hopkinson mentioned as a possibility.

“They should sell a minority stake in the team and use the proceeds to buy back stock,” Boyar Value Group principal Jonathan Boyar told Sportico. “It would not only be the best use of capital but also highlights the discrepancy between the public market value and what it is actual worth. The discrepancy is enormous.”

MSG Sports, which has an enterprise value of about $5 billion, saw a jump in share price reaching as high as $191 before returning to $184 on Friday one day after the Knicks edged the Philadelphia 76ers in Game 6 of their first-round series to advance. Overall, the MSGS stock remains steady despite the on-ice and on-court success. MSG Sports shareholders could be all in on the Jalen Brunson MVP train, but that doesn’t mean they are satisfied with the price.

There’s a perception that the controversial owner has hurt the company’s value, leading to a “Dolan Discount” on the share price. “There’s anxiety in investing alongside [Dolan],” Boyar said. “That’s why the stock is so cheap. Investors aren’t willing to give him the benefit of the doubt.”

This, coupled with the complexities of the current shareholder structure and the widespread belief Dolan will never sell his controlling shares, can deter prospective investors who are considering buying MSG Sports stock.

MSG Sports, which reported a 12% year-over-year increase in third quarter revenue last week, can leverage this postseason run to reiterate value on the marketplace even if it doesn’t lead to a new major investor. Shareholders will still benefit from the postseason run in a string of ways. Millions of NBA fans are watching the Knicks, which means extra visibility for the team’s jersey patch partner Sphere Entertainment (NYSE: SPHR), a live entertainment and media company that Dolan also owns.

The financial gain from having not just one but two playoff contenders is also significant, since each home game generates positive earnings, which helps to hold cash position and could result in share buybacks or dividends. Playoff games not only improve immediate cashflow but generally lead to greater future attendance, merchandise sales and increased ticket prices, while also growing value for major sponsorships and media rights renewals.

“There’s value creation from [MSG] teams winning, because it drives up so many aspects of the business model,” David Joyce, a senior analyst at investment analysis firm Seaport Research Partners, said in an interview. “Revenue multiples are typically what teams are valued on if there is a sale transaction at the end of the day. So, all the positive team performance does have a lot of ripple effects.”

The Knicks are looking for their first NBA Finals appearance since 1999, while the Rangers are pushing for their first Stanley Cup Final appearance since 2014. MSG Sports will likely turn in one of its best fourth quarter reports in recent years thanks to the string of home playoff games. While shareholders reap the benefits and keep their fingers crossed for a potential sale, Knicks and Rangers fans will cheer on their squads up and down 7^th Ave.

And some will reconsider how they view feel about the MSG boss as their teams inch closer to a championship.

“Whenever any team loses, you’re going to be upset with the ultimate decision maker,” Joyce added. “But that might be a little quieter than usual right now.”